Simplicity is the Ultimate Sophistication

Great insight from Ben Carlson:

Running a very complex, unique style of portfolio management might impress the boosters, but it’s terrible from a continuity standpoint. You give yourself the potential to hit a home run, but the risk of striking out is magnified.

The more complex you make a portfolio in terms of different investment structures and strategies, the harder it becomes to maintain a consistent approach over time. It’s an operationally inefficient way to invest and requires serious manpower, time and resources to pull it off. Very few organizations can thread the needle in this way. And even if you have all of those things in place there’s no guarantee, except for the fact that you’ll be paying much higher fees. Increasing the number of fund types you implement only increases the operational risk, due diligence costs and monitoring problems.

It doesn’t get much more simple (or effective I would argue) than momentum.  As da Vinci said: “Simplicity is the ultimate sophistication.”

HT: Abnormal Returns

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